Demand shocks that muffle investment are persistent: Relationship between cumulative forecast error for NRFI and fiscal consolidation in early recovery

Country       y    x
      AUT -4.314 -1.13325
      BEL 11.04418 1.361767
      BGR -45.6441 0.173259
      CAN -4.73549 0.524523
      CHE 9.884786 -1.19615
      CZE -15.5711 0.244519
      DEU -3.45966 -2.64445
      DNK -0.02687 -1.53195
      ESP -20.9353 1.19464
      FIN -26.507 -0.96971
      FRA -11.5668 0.403186
      GBR -3.94964 1.666141
      GRC -31.8991 5.29577
      ITA -33.329 0.545954
      JPN -5.20827 0.001999
      NLD -11.4049 -0.01833
      PRT -29.2422 1.298319
      SVK -1.38784 1.093786
      SVN -53.064 1.65888
      USA -20.4687 0.566275

Note: The scatterplot shows the cumulative shortfall in NRFI (the actual difference between actual and forecast investment) from 2010 to 2015 and the change in the structural fiscal balance in 2009 and 2010 for 20 countries. The positive relationship shows that an increase in the fiscal balance (or a reduction in fiscal deficits) targeted through policy changes (either spending cuts or tax increases) is positively related to a shortfall in forecast investment.

Source: Data are from Blanchard and Leigh (2013) and the World Bank World Development Indicators.

View the underlying data on epi.org.